Severstal Export GmbH v Bhushan Steel Limited

Judgment 1These proceedings were commenced by summons filed on 22 February 2011. By notice of motion filed on 25 March 2011, Bhushan Steel Limited and Bhushan Steel (Australia) Pty Ltd seek an order that orders made by Davies J on 23 February 2011 be set aside or varied; and a stay of execution of a judgment of the Geneva Court of Appeal, which was, on 3 March 2011, registered pursuant to the Foreign Judgments Act 1991 (Cth), s 6. 2The parties to the proceedings are: Severstal Export GmbH ("Severstal") (plaintiff in the proceedings, respondent to the notice of motion); Bhushan Steel Limited ("Bhushan Steel") (defendant to the proceedings, an applicant in the notice of motion); Bhushan Steel (Australia) Pty Ltd ("Bhushan Australia") (not a party to the summons, but named as an applicant in the notice of motion). 3The order of Davies J sought to be set aside or varied was a freezing order made pursuant to the Uniform Civil Procedure Rules ("UCPR"), Pt 25, Div 2. I will say more about the detail of the order in due course.

Background 4Severstal is a company incorporated in Switzerland. Its business is to export, market and trade in steel products. 5Bhushan Steel is a company incorporated in India. Its business is the manufacture of steel products, including motor vehicle bodies and whitegoods. Bhushan Steel is part of (probably the centrepiece) of an extensive network of interrelated companies. It is a very substantial company. 6Bhushan Australia is a wholly owned subsidiary of Bhushan Steel, incorporated in Australia. 7Also to be noted is the existence of Bhushan Energy Limited ("Bhushan Energy"), a public limited company, part of the Bhushan companies network, and incorporated in India. 8Between August and December 2004, Bhushan Steel and Severstal entered into three contracts, pursuant to which Severstal supplied steel products to Bhushan Steel. Delivery of the steel the subject of the first contract was effected between 27 December 2004 and 5 January 2005; of the second contract between 31 March 2005 and 19 April 2005; and of the third contract, between 28 May 2005 and 23 June 2005. On 7 January 2005, Mr Pankal Sharma, an employee of Bhushan Steel, confirmed by email that the quality of the steel delivered to that date was acceptable ("absolutely OK"). 9On 3 February 2005 and 18 February 2005, Bhushan Steel placed two further orders with Severstal for the supply of steel, and the steel the subject of these orders was delivered between 1 July 2005 and 30 August 2005. On 9 March 2005, Bhushan Steel placed a sixth order, for the supply of 7,000 metric tonnes of steel. This contract was numbered 50754. 10The contractual arrangements between the parties were made with the assistance of Mahindra Intertrade Limited ("Mahindra"), a company used by Severstal to communicate on its behalf with Bhushan Steel. 11On 1 April 2005, it claims (the document is not among the voluminous documentary material in evidence), Bhushan Steel raised some issues about the quality of the steel delivered. 12On 4 May 2005, Mahindra advised Bhushan Steel that the steel the subject of contract 50754 was ready for delivery, subject to the opening of a letter of credit in payment (there was a minor discrepancy in the quantity of steel available, that Severstal recognised called for adjustment in the contract price. This is not presently material.) 13On 1 June 2005, Bhushan Steel advised Mahindra that it could not open the letter of credit (or take delivery of the steel). It gave as its reason a decline in the international price of steel, with the result that Bhushan Steel could not, using steel purchased at the contract price, operate competitively. 14Severstal insisted on completion of the contract; Bhushan Steel refused to complete. 15In September 2005, Severstal applied, in the local court in Dsseldorf, Germany, for "attachment orders" which were initially granted. These appear to be a form of temporary summary judgment. In this application, Severstal was seeking to enforce contract 50754. On 31 October 2005, the Dsseldorf court "cancelled" or, discharged, the attachment order, declining to exercise jurisdiction to hear the dispute. The nub of the decision appears to be: "That sufficient national connection [ie, with Germany] of the legal dispute ... does not exist in this case". Severstal appealed, unsuccessfully (judgment given on 9 March 2006). 16On 26 October 2005, Bhushan Steel wrote to Severstal asserting defects in the steel supplied pursuant to two of the earlier contracts. 17On 9 June 2006, Severstal commenced proceedings for damages for breach of contract in respect of contract 50754 in Geneva. On 18 June 2009 the court gave judgment in favour of Severstal, in the amount of US$1,924,934.20 plus interest, plus costs. 18Although, in recording the history of the dealings between Severstal and Bhushan Steel, the court noted the quality issue said to have been mentioned on 1 April 2005, and also a meeting on 27 and 28 January 2005 of representatives of Severstal and Bhushan Steel concerning future orders, particularly in terms of "quantity, quality and price", there is no indication in the judgment that alleged defect in the steel produced by Severstal was raised by way of defence. (Since the Geneva proceedings involved only steel the subject of contract 50754, of which Bhushan Steel had refused to take delivery, it is difficult to see how the quality of that shipment could have been an issue in those proceedings.) The court appears to have identified the issue in the proceedings as: "24. ... [Bhushan Steel] asserted that it was not contractually bound to SEVERSTAL for order number 50754 because SEVERSTAL had not countersigned the order confirmation by hand. The letter of the 1 April 2005 was qualified as a single "revocation" of an offer. It added that the compensatory sales had been made after too long a delay and that the storage costs were not proven." 19Bhushan Steel appealed against the decision. By judgment served on the parties on 20 January 2010 (but which is, in the affidavits and submissions in this Court, regularly referred to as of 15 January 2010) the Geneva Court of Appeal dismissed the appeal. It recorded a history in similar terms to that recorded by the first instance court, including the mention of the letter of 1 April 2005 concerning quality. The Court of Appeal expanded on the reference to the meeting of 27 and 28 January by saying: "Rolf RAINKE, an employee of Severstal 's agent, LIBERTY STEEL, which had worked with MAHINDRA in connection with this matter, indicated that he had met up with BHUSHAN [STEEL] in India on 27 January 2005 to discuss future orders. SEVERSTAL's technicians and sales staff were also present. BHUSHAN [STEEL] had indicated, during the discussions, that it wanted the surface of the goods delivered by SEVERSTAL to be improved. SEVERSTAL had replied that such improvement was largely impossible and that the steel delivered met the usual quality standard. BHUSHAN [STEEL] had then declared that it could live with the defects and that it would continue to order steel from SEVERSTAL ..." (Pp6/8) A reference was also made to defective coils provided on a prior occasion. 20It does not appear from the judgment of the Geneva Court of Appeal that the quality issue was, in any significant way, material to the appeal. 21On 8 January 2007, Bhushan Steel commenced proceedings in the Delhi High Court, in relation to the steel supplied by Severstal pursuant to the first three contracts, alleging that the steel provided was defective. Severstal is defending the claim. Hearing of those proceedings has commenced. There exists some controversy as to the likely progress of the proceedings, and the time estimated to be necessary for their completion. 22On 22 July 2010, Severstal took proceedings in the Netherlands to enforce the judgment of the Geneva Court of Appeal, and obtained appropriate orders. No further enforcement steps have been taken in that jurisdiction, because Bhushan Steel holds no assets there. 23On 20 January 2011, Bhushan Steel signed a share purchase agreement with Bhushan Energy, pursuant to which Bhushan Steel transferred to Bhushan Energy 3.999 million of the 7,570,099 shares it held in Bhushan Australia. The Australian dollar price per share was $1.00. The total Indian rupee price was 1,500,000 rupees. Over a period from 1 February 2011 to 17 February 2011, in three tranches, sums in the amount of 1,600,000 rupees were transferred from an account in the name of Bhushan Energy to Bhushan Steel. Bhushan Steel states that these payments represented payment for the shares in Bhushan Australia. (There is nothing in the accounts that confirms that that was the purpose of the payment.) 24On 22 February 2011, on application by Severstal, this Court made an order pursuant to Pt 2 of the Foreign Judgments Act , registering the judgment of the Geneva Court of Appeal. 25On 23 February 2011, again on the application by notice of motion of Severstal, Davies J made a "freezing order". Essentially, the effect of the order is to restrain Bhushan Steel, until further order, from dealing in its shares in Bhushan Australia, up to a value of $2,448,712.10 (the equivalent value of the Geneva judgment), and restraining Bhushan Australia, until further order, from registering any changes in its shareholding. Since the transfer of the shares in Bhushan Australia from Bhushan Steel to Bhushan Energy is not completed, registration not having taken place, the order preserves the status quo in Bhushan Steel's shareholding in Bhushan Australia, and prevents completion of the sale, and depletion of assets held in Australia by Bhushan Steel. 26On 24 June 2011, Bhushan Steel offered to resolve the present dispute by providing a "conditional bank guarantee" in the amount of the registered judgment, plus interest calculated to 30 November 2011, to be payable on completion of the Delhi proceedings (the amount payable to depend upon the outcome of those proceedings). Severstal does not accept that offer.